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Hard Money Loans Interest Rates

By craig braddick on November 2, 2023 / hard money loans

Hard money loans typically come with higher interest rates compared to traditional bank loans. The specific interest rate on a hard money loan can vary based on several factors, including the lender, the loan-to-value (LTV) ratio, the borrower’s creditworthiness, and the local real estate market. Here are some general guidelines on hard money loan interest rates:

Higher Interest Rates: Hard money lenders charge higher interest rates because they provide loans that are riskier and typically have shorter terms than traditional mortgages. Interest rates on hard money loans can range from 7% to 15% or more. The rate may be fixed or variable, depending on the loan terms.
Risk-Based Pricing: The interest rate you’ll receive on a hard money loan is often determined by the perceived level of risk associated with the loan. Lenders assess factors like the property’s condition, the borrower’s credit history, and the borrower’s experience in real estate to determine the appropriate interest rate.
Loan-to-Value Ratio: The loan-to-value (LTV) ratio, which is the ratio of the loan amount to the property’s appraised value, plays a significant role in determining the interest rate. Generally, the lower the LTV, the lower the interest rate. A lower LTV reduces the lender’s risk.
Loan Term: Hard money loans typically have short terms, often ranging from six months to a few years. Shorter-term loans may have slightly higher interest rates than longer-term loans.
Points: Some hard money lenders charge “points” upfront, which are an additional fee expressed as a percentage of the loan amount. Points are paid at the closing of the loan and are in addition to the interest rate. The number of points can vary but is typically 1% to 5% of the loan amount. In some cases, points can be negotiable.
Location and Market Conditions: Local real estate market conditions can also influence interest rates. In areas with high demand for hard money loans, interest rates may be slightly higher.
Borrower’s Experience: Some hard money lenders consider the borrower’s experience in real estate investment when determining the interest rate. More experienced investors may receive more favorable terms.
Credit History: While hard money lenders primarily focus on the collateral (the property) when making lending decisions, some may still consider the borrower’s credit history to some extent. However, poor credit is generally less of a concern for hard money lenders than it is for traditional banks.

It’s essential to shop around and obtain quotes from different hard money lenders to compare their interest rates and terms. Understand the terms and conditions of the loan, including the repayment schedule, any prepayment penalties, and any additional fees. Additionally, carefully evaluate the potential return on investment (ROI) to ensure that the higher interest rates associated with hard money loans are justifiable for your specific real estate project.

Hard Money Loans

When you hear the words “hard money loan” (or “private money loan”) what’s the first thing that goes through your mind? Some shady looking lender who is conducting business in a dark alley while charging sky high interest rates?

In recent years, there have been some bad lenders that have really gave hard money lending a bad name when a few lenders decided to loan-to-own to people which provided very risky loans to borrowers while using real estate as collateral and they intended to foreclose on the property. Luckily, these hard money lenders don’t exist in this market, although there is still some bad blood in real estate investing for those who haven’t used the services of a reputable hard money lender.

This article will cover the basic of hard money loans, which include:

What are hard money loans
Types of properties hard money loans work best for
What deals a hard money loan can be used for
Interest Rates & Points for a hard money loan
Hard Money loan to value ratios
Borrower requirements for a hard money loan
Finding a hard money lender to work with

What Are Hard Money Loans?

Hard money loans are short term loans that are secured by real estate. They are often funded by private investors instead of conventional lenders like credit unions or banks. The terms are for about 12 months but they may be extended to 2 to 5 years. The loan does require monthly payments of interest or some principal and interest with a balloon payment at the end of the loan.

The amount that you can borrow is based on the value of the property. The property has to be one that you already own and wishes to use as collateral or it could be the property that you are trying to buy.

Hard money lenders are mainly worried about the property value instead of your credit, although credit scores are still important to lenders. Those who can’t get a conventional loan because of a short sale or foreclosure can get a hard money loan if they have plenty of equity in the property being used. When a bank says no, a hard money lender may say yes.

Types of Property Hard Money Loans Work Best For

You may get a hard money loan on most types of property which includes single family residential property, commercial, industrial, multi-family residential and land.

There are some hard money loan lenders that specialize in a certain property type like residential and may not be able to do land loans, because they have no experience in that field. Many lenders will have a particular niche that they are comfortable with. Ask which loans that they do.

Most hard money lenders won’t lend on residential properties that are owner occupied due to extra rules and regulations, but there are some that will go through the paperwork with the borrower. Many lenders will do 1^st position while fewer will do 2^nd position because of the risk.

What Deals Should a Hard Money Loan Be Used For?

A hard money loan isn’t best for all deals. When you are purchasing primary residences with good income history, credit, and there aren’t issues like foreclosures or short sales, conventional loans through a bank are best if the borrower has time to deal with the lengthy approval process. Hard money loans are your source of financing when banks aren’t an option or the loan is needed quickly.

Hard money loans are best for:

When real estate investors need to act quick
When the buyer has credit issues.
Land loans
Construction loans
Fix and flips

Who Needs a Hard Money Loan?

Real estate investors will often use hard money loans for various reasons. The biggest reason is that the ability of hard money is to fund it quickly. In many situations, hard money can be funded in a week. Compared to the 45 days that it may take for a bank loan. The application for a hard money loan takes about 2 days, in some instances it could be approved in the same day.

The capacity to get subsidizing at a considerably quicker rate than a bank advance is a critical preferred standpoint for a land financial specialist. Particularly when the land speculator is attempting to secure a property with many contending offers, a snappy close with a hard money advance will stand out enough to be noticed and separate their offer from whatever remains of the purchasers offering moderate regular financing.

Another reason a borrower may utilize a hard money loan is that they have been dismissed by the banks for a typical mortgage. Life doesn’t generally go as arranged. Short deals, abandonments, credit issues… they happen. Another vital thing banks need to see is pay history. In the event that a potential borrower as of late began another employment, the bank may deny the loan ask for because of lacking salary history, regardless of the possibility that the borrower makes a sound pay. Hard money banks can look past these issues as long the advance be reimbursed and the borrower has enough value put resources into the property.

Interest Rates and Points For a Hard Money Loan

The financing costs and focuses charged by hard money loan specialists will shift from bank to moneylender and will likewise fluctuate from district to locale. For instance, hard money loan specialists in California by and large have bring down rates than different parts of the nation since California has numerous hard money loaning firms. Expanded rivalry prompts an abatement in costs.

Hard money moneylenders go out on a limb with their loans contrasted with an ordinary bank advance. Because of this higher hazard required on a hard money loan, the financing costs for a hard money advance will be higher than typical mortgages. Financing costs for hard money advances extend from 10 – 15% relying upon the particular moneylender and the apparent danger of the loan. Focuses can go somewhere in the range of 2 – 4% of the aggregate sum loaned. The financing costs and focuses may shift significantly contingent upon the loan to esteem proportion.

Hard Money Loan to Value Ratios

The credit sum the hard cash bank can loan is controlled by the proportion of advance sum isolated by the estimation of property. This is known as the credit to esteem (LTV). Numerous hard cash moneylenders will loan up to 65 – 75% of the present estimation of the property. A few loan specialists will loan in light of the after repair esteem (ARV) which is the evaluated estimation of the property after the borrower has enhanced the property. This makes a less secure credit from the hard cash moneylender’s point of view, in light of the fact that the measure of capital put in by the loan specialist increments and the measure of capital contributed by the borrower diminishes. This expanded hazard will make the hard cash loan specialist charge a higher financing cost.

There are some hard cash loan specialists who will loan a high level of the ARV and will even back the recovery costs. This may sound incredible from the borrower’s perspective in the first place, however these sorts of credits have a substantially higher hazard included and the loan fee and focuses will be MUCH higher. Expect 15 – 18% intrigue and 5 – 6 focuses when a bank finances an advance with practically zero up front installment from the borrower. Sometimes, it might be advantageous for the borrower to pay these over the top rates with a specific end goal to secure the arrangement in the event that they can in any case produce benefit from the venture.

Borrower Requirements for Hard Money Loans

As talked about before, hard cash moneylenders are principally worried about the measure of value the borrower has put resources into the property that will be utilized as guarantee. They are less worried about the borrower’s FICO score. Issues on a borrower’s record, for example, an abandonment or short deal can be disregarded if the borrower has the money to pay the enthusiasm on the advance.

The hard cash loan specialist should likewise consider the borrower’s arrangement for the property. The borrower must present a sensible arrangement that shows how they plan to at last result the credit. Generally, this is enhancing the property and offering it or acquiring long haul financing later on.

Finding a Hard Money Lender to Work With

There are a lot of different ways to find a good hard money lender. One way is to do a Google search for hard money lenders in your area. There will be other companies in the search results as well as lists made by other people. This provides plenty of lenders to start contacting and checking out.

You can also try attending a local real estate investor club meeting. These meetings are in many cities and are well attended by hard money lenders looking to network with buyers. If no lenders are present at the meeting, ask other investors if they have a lender to recommend. Conventional mortgage brokers, real estate brokers, and other professionals can help to recommend a hard money lender. Check your network and see who is recommended.

Once you have a few on your list, start contacting them and find the best lender for your deal.

Conclusion

We hope that this article has given you enough information and confidence to consider hard money lenders and loans for a future estate deal. The higher interest rates may seem a bit scary, but the benefits of getting a loan quickly and being able to get financing when everyone else has said no is well worth it. Brad Loans by eMortage is a hard money lender in Phoenix, Arizona offering hard money loans to residential and commercial property buyers.

Are Hard Money Loans Inflation Proof?

By craig braddick on October 20, 2023 / Blog, hard money loan approval, hard money loans, loan approval, Owner Occupant Loans, refinancing

Hard money loans are not inherently “inflation-proof,” as they are influenced by various economic and financial factors, just like other types of loans. Inflation, which is the increase in the general price level of goods and services over time, can have several effects on hard money loans:

Interest Rates: Inflation can influence interest rates, including those associated with hard money loans. If inflation is on the rise, central banks may respond by increasing benchmark interest rates to control inflation. This can lead to higher interest rates on hard money loans.
Borrowing Costs: As interest rates rise due to inflation, borrowing costs for hard money loans can also increase. Borrowers may have to pay more in interest, which can impact the overall cost of the loan.
Loan Terms: In an inflationary environment, hard money lenders may adjust their lending terms to account for the reduced purchasing power of money. They may offer shorter loan terms or require borrowers to pay a larger down payment.
Property Values: Inflation can affect the value of real estate and other assets that serve as collateral for hard money loans. Property values may increase in an inflationary environment, potentially affecting the loan-to-value (LTV) ratio and the terms of hard money loans.
Loan-to-Value Ratio: Inflation can impact the loan-to-value ratio, which is the ratio of the loan amount to the appraised value of the property. Rising property values can lead to lower LTV ratios, which may result in more favorable loan terms for borrowers.
Economic Conditions: The overall economic conditions, including inflation rates, can influence the demand for hard money loans. In times of economic uncertainty or high inflation, borrowers may seek hard money loans as an alternative financing option.

It’s important to note that hard money loans are typically shorter-term loans, often used for real estate investments or projects that require quick funding. The impact of inflation on hard money loans may be less significant than on long-term loans with fixed interest rates.

To address the potential effects of inflation when seeking a hard money loan, borrowers should consider the following:

Keep an eye on inflation trends and central bank interest rate policies to anticipate potential interest rate changes.
Negotiate loan terms that align with your expectations regarding inflation and property value appreciation.
Consult with a financial advisor or attorney to understand the implications of inflation on your specific loan terms and overall financial situation.

In summary, hard money loans are not immune to the effects of inflation, and their terms and costs can be influenced by economic conditions and interest rate changes. Borrowers should be aware of these factors and plan accordingly when seeking hard money financing.

Can A Hard Money Loan Be Transferred?

Hard money loans typically cannot be transferred from one borrower to another without the lender’s consent. These loans are typically based on the value of the underlying asset, such as real estate, and are often granted to a specific borrower or entity for a particular purpose. Transferring a hard money loan may require approval from the lender and potentially a modification of the loan terms. Here are some considerations:

Lender Approval: Before a hard money loan can be transferred to a new borrower, the lender must typically approve the transfer. Lenders will assess the creditworthiness and financial situation of the new borrower to ensure they are capable of repaying the loan.
Loan Modification: In many cases, transferring a hard money loan involves a modification of the loan terms, including the interest rate, loan amount, and repayment schedule. The lender may require updated terms that reflect the new borrower’s financial situation and risk profile.
New Collateral: If the hard money loan is secured by specific collateral, such as real estate, the lender may need to assess the condition and value of that collateral before approving a transfer. The new borrower’s asset may also be considered as collateral.
Fees and Costs: Transferring a hard money loan may involve various fees and costs, including loan assumption fees, legal fees, and appraisal fees. The new borrower and the existing borrower may be responsible for covering these expenses.
Due Diligence: Lenders will conduct due diligence on the new borrower, similar to the process they follow when originating a new loan. This may include a credit check, financial documentation, and an evaluation of the new borrower’s qualifications.
State and Local Regulations: Loan transfer regulations may vary by state and locality, and certain jurisdictions may have specific requirements or restrictions on loan transfers. Complying with these regulations is important.
Consent from All Parties: All parties involved, including the existing borrower, the new borrower, and the lender, must consent to the loan transfer and agree to the revised terms.

It’s important to communicate with the lender early in the process if you are considering transferring a hard money loan. The lender’s willingness to facilitate the transfer and the specific requirements and conditions will vary depending on their policies and the terms of the loan agreement.

Keep in mind that transferring a hard money loan can be a complex process, and the lender’s decision may depend on the unique circumstances of the loan and the creditworthiness of the new borrower. Consulting with a legal or financial advisor can be valuable when exploring the possibility of transferring a hard money loan.

Bridge Loans In Arizona

If you are looking for bridge loans in Arizona, Brad Loans by eMortgage can help. We offer bridge loans, hard money loans and fix and flip loans in Phoenix, Arizona and the sourounding cities.

How Does The Economy Impact Hard Money Loans?

By craig braddick on October 20, 2023 / Blog, hard money loan approval, hard money loans, refinancing

How To Purchase Rentals With No Money Down Hard Money Loans

The economy can have a significant impact on hard money loans, just as it does on traditional lending and financial markets. Hard money loans are typically short-term, asset-based loans that are often used by real estate investors and borrowers who may not qualify for traditional bank financing. Here’s how the economy can influence hard money loans:

Interest Rates: Economic conditions, especially changes in central bank interest rates, can affect the interest rates on hard money loans. When the economy is booming and central banks raise interest rates to control inflation, hard money loan rates may also increase. Conversely, during economic downturns, interest rates may decrease.
Credit Availability: In a strong economy, borrowers may have an easier time obtaining traditional bank loans, which offer lower interest rates and longer terms compared to hard money loans. However, during economic downturns or credit market crises, banks may tighten lending standards, making it more challenging for borrowers to qualify for bank loans and increasing the demand for hard money loans.
Property Values: The overall economic health can influence property values, impacting the collateral used to secure hard money loans. In a strong economy, property values tend to rise, potentially providing more valuable collateral. In a weaker economy, property values may stagnate or decline, affecting the loan-to-value (LTV) ratio and the terms of hard money loans.
Loan Terms: Economic conditions can affect the terms of hard money loans, including loan-to-value ratios, interest rates, and loan duration. During economic uncertainty or downturns, hard money lenders may be more conservative and reduce LTV ratios, increase interest rates, or offer shorter loan terms to mitigate risk.
Borrower Demand: Economic factors can influence the demand for hard money loans. During economic booms, real estate investment and development projects may increase, driving up the demand for hard money loans. In contrast, during economic downturns, demand for hard money loans may decline as investment opportunities become scarcer.
Lender Risk Tolerance: Hard money lenders are private individuals or entities, and their risk tolerance can be influenced by economic conditions. In prosperous economic times, lenders may be more willing to take on riskier projects or offer more favorable terms. During economic uncertainty, they may become more risk-averse and impose stricter lending criteria.
Availability of Funds: Economic factors can affect the availability of funds for hard money lenders. When the economy is doing well, lenders may have more capital to invest in loans. Economic downturns can impact their ability to raise funds for lending, potentially reducing the supply of hard money loans.

It’s important to note that hard money loans are generally less influenced by economic conditions compared to traditional bank loans because they are primarily asset-based and focus on the value of the collateral. Borrowers who cannot qualify for traditional loans or need a quick financing solution may turn to hard money lenders, regardless of economic conditions.

Borrowers and investors considering hard money loans should carefully assess their financial situation, the potential risks, and the terms offered by lenders, especially in light of current economic conditions. Additionally, it’s advisable to work with reputable hard money lenders who have a history of responsible lending practices.

Hard Money Loan Rates

Hard money loan rates typically ranged from 7% to 15% or more, with some lenders charging even higher rates for riskier loans.

It’s essential to understand that hard money loans are often considered riskier than traditional bank loans, and as a result, they tend to have higher interest rates. To get the most accurate and up-to-date information on hard money loan rates, you should contact several hard money lenders in your area or conduct online research.

When inquiring about hard money loan rates, keep in mind that lenders may consider the following factors in determining the rate:

Credit History: Some hard money lenders may take the borrower’s credit history into account, but this is generally less important than the property’s value and the loan’s LTV ratio.
Property and Location: The type of property and its location can affect the interest rate. Lenders may charge different rates for residential properties, commercial properties, or properties in different regions.
Loan-to-Value (LTV) Ratio: The LTV ratio, which is the ratio of the loan amount to the appraised value of the property, is a crucial factor. Lower LTV ratios (meaning the borrower is providing a larger down payment) may result in lower interest rates.
Market Conditions: Economic conditions, local real estate market conditions, and lender competition can all influence hard money loan rates.
Lender Policies: Different hard money lenders have different policies and risk assessments, which can lead to variations in the rates they offer.

To get the most accurate and up-to-date rates, reach out to hard money lenders directly, compare offers from multiple lenders, and thoroughly review the terms and conditions of each loan. Be prepared to provide details about your project, the property, and your financing needs to receive the most accurate rate quotes.

Please note that my information is based on the state of the industry as of September 2021, and market conditions may have changed since then. It’s important to do your due diligence and work with a reputable and experienced hard money lender to secure the most suitable loan for your specific situation.

Give us a call today if you are interested in hard money loans for fix and flip, finishing construction, refinancing your mortgage, buying land, or need loans for other investment opportunities but have bad or no credit. Give Brad Loans a call today at (602) 999-9499.

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